For those who think regulation could be better with the right people in place, here is a good quote from Milton Friedman:

" “What would you think of someone who said, ‘I would like to have a cat, provided it barked’? Yet your statement that you favor an FDA provided it behaves as you believe desirable is precisely equivalent. The biological laws that specify the characteristics of cats are no more rigid than the political laws that specify the behavior of governmental agencies once they are established. The way the FDA now behaves, and the adverse consequences, are not an accident, not a result of some easily corrected human mistake, but a consequence of its constitution in precisely the same way that a meow is related to the constitution of a cat. As a natural scientist, you recognize that you cannot assign characteristics at will to chemical and biological entities, cannot demand that cats bark or water burn. Why do people suppose that the situation is different in the social sciences?"

Milton Friedman spent most of his life as a propagandist, reeling off essentially meaningless statements about government. There is next to no analogy between the physical sciences and the social "sciences."
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We can fire pols if they don't do as we wish, and thus replace the agency staffs. Was there really no difference between the Fed under Volcker and the Fed under Greenspan?
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But someone has to keep us informed about what they're up to.

Friedman promoted free markets, but he had plenty of evidence that free markets help the poor far more than unfree markets. The evidence is overwhelming. So he didn't do propaganda.

Actually, Friedman followed Buchanan’s school of public choice, which says that given human nature, the incentives for pols and regulators make sure they don’t care about the public good. To work well, pols and regulators must be angels, but turning humans into angels is making cats bark.

The writers of the Constitution understood this. That’s why they limited government; they figured stupid individuals acting on their own stupidity would do far less harm than stupid politicians with the fire power of the state in their hands. Instead, Americans have decided that politicians can be angels if we wish hard enough, or if they’re from my party, and so have given them unlimited power.

You may not have noticed, but voters don’t fire pols because the bad pols are always the other guy’s, not mine. And even if one party occasionally wins a tiny majority in Congress or holds the presidency, nothing changes. They do the same things, some worse, that the “enemy” did.

Friedman promoted free markets, but he had plenty of evidence that free markets help the poor far more than unfree markets. The evidence is overwhelming. So he didn't do propaganda.

Actually, Friedman followed Buchanan’s school of public choice, which says that given human nature, the incentives for pols and regulators make sure they don’t care about the public good. To work well, pols and regulators must be angels, but turning humans into angels is making cats bark.

The writers of the Constitution understood this. That’s why they limited government; they figured stupid individuals acting on their own stupidity would do far less harm than stupid politicians with the fire power of the state in their hands. Instead, Americans have decided that politicians can be angels if we wish hard enough, or if they’re from my party, and so have given them unlimited power.

You may not have noticed, but voters don’t fire pols because the bad pols are always the other guy’s, not mine. And even if one party occasionally wins a tiny majority in Congress or holds the presidency, nothing changes. They do the same things, some worse, that the “enemy” did.

Friedman mindlessly propagandized about free markets. A market is somthing that has to be maintained, and even Adam Smith was well aware that if it were left to it's sellers would become a conspiracy against buyers. But preventing that doesn't take much regulation
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Financial markets, where demand increases as prices go up, and drops when they go down, are absolutely mad, and belong in chains.

Same difference.
Giving out an email address is the same as paying for it.
They'll hit you back with ads or sell the address to someone else that will.
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Maybe I'll try it with hedgefundguy@economist.com
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NPWFTL
Regards

Is anything being done to regulate the shadow banking system? Borrowing short and lending long is the same game, no matter who does it or how they go about it - Gorton on repos, anyone?
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The only way to make banks relatively safe is to adhere to solid standards for loan origination. Regulators can control that. Have we learned that putting people in houses they are likely to lose is worse than not putting them into houses at all? That lesson applies to all ABS.
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Banks ought to be lending to the real economy; businesses that want to grow, consumers who are borrowing within their means. The Volcker Rule ought to apply in it's full, original strength and purpose - get banks out of the casino altogether. Any exceptions will be abused, and the rule will be a nullity.

The "shadow" banks, or investment banks, are all commercial now. They became commercial in order to get the TARP money. So they're under the same regs as commercial banks. They were under Basel from 2004 and have always been regulated by the SEC.

Besides, banks lending to people who couldn't make the payments was the whole point of Congress' forcing subprime loans on banks. Clearly, Congress thinks it knows how to run banks better than bankers do.

Don't you mean *not* regulated? Home ownership had increased without storing up a disaster until the 21st century. The danger then was known and ignored. Ask the FBI. Ask Sheila Bair. Greenspan didn't want to hear it. Besides, those 2005-2007 bottom-of-the-barrel MBS were created to meet a worldwide demand for fraudulent AAA paper, the fraud enabled by the ratings agencies. They had absolutely nothing to do with originating mortgages that were sound, because it didn't matter to the originator - just keep the securitization pipeline full. Those last few years before the bust were about the profits of financial firms, not about the much longer term attempt to get poorer people into houses. I don't think either the Dems in Congress or Bush's "Ownership Society" ever dreamt of the abuses of 2005-2007, or had ever heard of a CDO. But Greenspan had been first told about potential problems with loan originations by 2000, and was fully informed of serious trouble by 2003 at the latest. The worst of the mess could have and ought to have been avoided. If you knew, or even met a mortgage broker at a party in those days, you found out what was going on in time to stop it going any further.
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Ah, Basel. Hey, banker, how much equity capital do you need? That sound good. OK. Same with Basel III and its risk-based capital requirements. But, of course, we all know that sovereign debt is perfectly safe.

I disagree that the dangers were known, except by economists following the Austrian school. Mainstream financial econ did not see any problems. Yes, a few people not wedded to mainstream econ could see what was coming, but policy is driven by mainstream econ theory, not the fringe like Austrian economics. The ratings agencies followed the same mainstream econ. Mainstream economists had orgasms over MBSs.

Obviously, bankers and make loans in order to make a profit. Who doesn’t? But why would regulators let them make loans that regulators and banks knew the borrowers could pay? Regulators saw conflicting laws: 1) make sound loans vs 2) loan to poor people who can’t make the payments. Regulators chose #2, probably because they valued their jobs. Buchanan was right: when push comes to shove, regulators look out for their own interests. A regulator who cares about the public interest is a barking cat.

Alas, the Basel Comedy Hour. Believe it or not, people of the world, we let banks determine their own equity capital levels by trusting their own assessments of the riskiness of their own assets, assessments that we know to be garbage - off by as much as a factor of ten. The whole modern edifice of risk management is useless. See a very good Economist book. See, Shirreff, Dealing with Financial Risk.
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Any risk-based method of determining capital requirements will fail catastrophically one day. Basel III, for that reason, is a joke.

I agree, but I think most regulation is a joke. Who writes Basel regulations? Bankers, of course. Who writes any regulation on any industry? Reps from the industries being regulated. That’s why regulation doesn’t work and can’t be made to work like the proponents of regulation want. That’s what Buchanan and Friedman were trying to tell people for 50 years.

And that’s why so many like Friedman and Hayek settled on free banking as the best cure for financial crises. You can’t trust regulators any more than you can trust foxes to guard chickens. Competition forces more businessmen to do the right thing against their will than an army of regulators.

Remember that there are only 435 Representatives and 100 Senators on Capitol Hill. Revolving door jobs operate at every level of influence that is of sufficient value to the businesses that offer them. And why wouldn't their old friends in government welcome them back, now with both public and private experience in their area of expertise? And why wouldn't their old friends in the private sector expect that first-hand experience of their difficulties would make any regulations more accommodating? Especially with another private sector job in mind?
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Why would those in power change what works so well for themselves and their friends? Only voter fury can scare them enough to do it. But voters can not be infuriated by what they do not know.
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So where are the Tribunes of the People, the news media? Probably having lunch with the people they ought to expose.

So where are the Tribunes of the People, the news media? Probably having lunch with the people they ought to expose.
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My local PBS station carries Bill Moyers on Friday night at 11pm, and the PBS World station carries it a few times afterwards.
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You can always go to www.billmoyers.com to catch up on the revolving door updates.
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And you can always spread the word.
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NPWFTL
Regards